After failing to deliver on its promise to divest itself of ownership of ammunition maker Freedom Group, Cerberus Capital Management is now offering another option to its investors. The hedge fund and private equity firm has given its clients an unusual option to individually chose if they want to invest in the gun company or not.
Cerberus would let investors opt out of specific company
The new solution that Cerberus has formulated allows investors the choice to sell their economic interest in Freedom Group. Previously Cerberus had failed to find a buyer for its entire share in Freedom Group which was expected to fetch over $1 billion. Cerberus has nurtured Freedom group into what it is today; the gun company has made a dozen acquisitions under the ownership of Cerberus.
Cerberus came under severe pressure after it was reported that the firearm used in the tragic Sandy Hook incident was a Bushmaster rifle manufactured by Freedom Group. California State Teachers’ Retirement System (Calstrs), an investor in Cerberus, has pushed the asset manager to take practical steps in order to limit its association with the gun company. On the current arrangement offered by Cerberus, Calstrs said it is disappointing that Cerberus still holds a major stake but acknowledged that the group has made honest efforts to sell its position.
In response to Cerberus’ proposal, Jennifer Fiore, executive director of Campaign to Unload said these were half-hearted efforts from the investor and that it can do better. Fiore wrote in her statement,
“As principal owner of one of the most toxic products in America, Cerberus and its CEO Stephen Feinberg have an ethical imperative to unequivocally divest from Freedom Group. These are tainted profits, and activists will not be satisfied until every last dollar has been divested, as Cerberus pledged nearly one year ago.”
Cerberus under pressure
The statement from the activist campaign noted that investor pressure on Cerberus is mounting and investors will continue to push for complete sale of the stake. Fiore said that Cerberus could deliver on its year-old promise and be the trend-setter in saying no to guns. The statement ended on a forbidding note, saying that if Cerberus did not sell out now it would be complicit in spreading gun violence.
Other gun manufacturers that are owned by hedge funds and PE groups include Smith & Wesson Holding Corp (NASDAQ:SWHC) and Sturm, Ruger & Company (NYSE:RGR). Gotham Asset Management owns small positions in both Smith & Wesson and Sturm, Ruger & Company (NYSE:RGR) whereas Millennium Management only owns the former. Smith & Wesson reported a 27% increase in handgun sales in its quarterly earnings report yesterday. Despite higher sales, profits were down 20% in the last quarter.